CMA Final · Corporate Financial Reporting · Income Taxes (Ind AS 12)
Arjun Ltd acquired 100% of Beta Ltd. Fair value of Beta's identifiable net assets before tax effects is Rs 50,00,000, including a building whose fair value exceeds its tax base by Rs 10,00,000. Consideration paid is Rs 60,00,000 and the tax rate is 30%. Ignoring other items, what is the goodwill recognised on consolidation?
Goodwill is Rs 13,00,000. The fair value uplift of Rs 10,00,000 over tax base creates a deferred tax liability of Rs 3,00,000 at 30%, reducing net identifiable assets to Rs 47,00,000. Subtracting this from consideration of Rs 60,00,000 gives goodwill of Rs 13,00,000.
- ARs 13,00,000Correct
- BRs 10,00,000
- CRs 7,00,000
- DRs 3,00,000
Explanation
A DTL is recognised on the Rs 10,00,000 taxable temporary difference: 30% x 10,00,000 = Rs 3,00,000. Net identifiable assets = 50,00,000 - 3,00,000 = 47,00,000. Goodwill = 60,00,000 - 47,00,000 = Rs 13,00,000. Ignoring the DTL would give Rs 10,00,000, which is wrong.
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